House buying, mortgages, insurance, etc

[Left Back]

4 minutes ago, alta-pete said:

I’d say explore a variable rate. Rates are only coming down, now is about the worst time to fix. 

I've had a quick look at comparison sites.  Not really finding anything (fixed or variable) where an initial 2 year term would be significantly cheaper than renewing on another two year term.

I've got until the end of April.  Will see if rates come down a bit before making a decision.

[19QOS19]

Does the value of your house make all that much difference in regards to remortgaging?

[Left Back]

11 minutes ago, 19QOS19 said:

Does the value of your house make all that much difference in regards to remortgaging?

Value doesn't.  Loan to value does.

Just as an example you can see a spread of 0.5% on this lender depending on your LTV.

https://www.scottishwidows.co.uk/bank/existingcustomers/product-transfer.html#interest-rates

Edited February 13 by Left Back

[arab_joe]

On 16/06/2023 at 14:01, arab_joe said:

I'm in the process of selling a flat that I own out here, and buying a place in the UK - finding the whole thing incredibly stressful.  Hoping this place will be our "forever home" because I really don't fancy doing this again any time soon.

But I'm actually quite glad that the interest rates have gone up (I'm being quoted around 5% for 2 year fixed) - if I had been doing this 2 or 3 years ago I probably would have borrowed a lot more and found myself bankrupt right about now...

Purchase went through in July last year, currently having the place renovated top to bottom (which is even more stressful/expensive than the buying process...) - my question is, what do people recommend in terms of life insurance/critical illness cover etc.? 

I don't know where to start...

[Leith Green]

55 minutes ago, arab_joe said:

Purchase went through in July last year, currently having the place renovated top to bottom (which is even more stressful/expensive than the buying process...) - my question is, what do people recommend in terms of life insurance/critical illness cover etc.? 

I don't know where to start...

You need to cover yourself in the event that you cant pay a mortgage etc.

Most people have some form of life insurance to cover this - some of them have crit illness as well.

I guess part of it may depend on how large your mortgage is, and your own financial situation. We paid off most of our mortgage last year, theres about £10k left and we cancelled the life insurance as it was pretty bloody expensive (original mortgage has huge) on a monthly basis.

 

[hk blues]

1 hour ago, arab_joe said:

Purchase went through in July last year, currently having the place renovated top to bottom (which is even more stressful/expensive than the buying process...) - my question is, what do people recommend in terms of life insurance/critical illness cover etc.? 

I don't know where to start...

When we bought our 1st place we had an endowment mortgage and life assurance was built into the premium - I think as a requirement.  We also bought redundancy/illness insurance which was a waste of money in retrospect but isn't most insurance?  As our salaries began to grow and the mortgage stayed static we stopped paying the insurances/assurances that were not obligatory. 

Long story short - if your mortgage is 'high' relative to income then maybe get some cover for peace of mind. 

[Hedgecutter]

Something I'm struggling to get my head around because I feel like an utter thicko whenever complex sums are involved:

Background:  I'm in a situation whereby I stopped overpayments on a 1.9% mortgage because I'm getting 5.5% in a cash ISA instead, i.e. more made in ISA interest than mortgage interest saved.  I'm now reconsidering this approach as my fixed rate will soon match the savings rate.

My initial reaction would be to say "there's no difference, may as well keep it in the ISA to add to the rainy day fund rather than tie it up in bricks & mortar". 

However, and this is the main question:  is there another significant facet to what's potentially/probably an oversimplified argument, particularly in a situation where I'd put what-was the monthly mortgage money into savings?  For simplicity sake, let's say the most extreme overpayment by completely paying off a 50k outstanding mortgage balance today.

Option A: pay a 5% mortgage as normal at ~£330pm for 20yrs (taking a £29k interest hit in the process), overpay nothing, and instead stick the 50k into a 5% savings account for 20 years:  £85k gain through savings interest - £29k mortgage fees  = up £56k

Option B: Use the 50k to wipe out the mortgage.  Stick the £330 into a savings account every month for 20 years  = up £56k, minus ERC.  

What's missing here? (other than an appreciation that 5% savings account might not be around for the next 20 years)

Edited March 1 by Hedgecutter

[Melanius Mullarkey]

Pay the mortgage off. Don’t ask any questions.

[Soapy FFC]

Have you taken into account inflation, on so far as 50k now will be worth a lot more than 50k in 20 years? 

[Gnash]

Interesting question.  

Assuming you can trust yourself (and anyone else that can access the savings account) not to blow it on a speedboat, I would keep the money in the ISA as it gives you more flexibility to use it for a rainy day.  The key would be to see when the rates diverge again and change your approach accordingly.

Given that the rates are likely to diverge very soon, possibly by 1%+ in the next year, I wouldn't bother with doing calculations looking out to the next 20 years.  You will have made a firm decision long before you get to that point.

[Hedgecutter]

1 hour ago, Soapy FFC said:

Have you taken into account inflation, on so far as 50k now will be worth a lot more than 50k in 20 years? 

As in, why pay April 2037's £330 mortgage bill now when you can pay it in 2037 for what might be the price of a Freddo?  

ETA: then again, if that's the case, one might then regret having invested £50k long term when all it might do is buy you a box of Freddos.  Basically, would inflation not affect the savings and mortgage payments equally, ie. just cancel out any inflation issue?

Edited March 1 by Hedgecutter

[SH Panda]

There have been quite a few studies on this, but from a purely logical perspective paying off your mortgage early rarely makes sense.

As you correctly point out you can get guaranteed income in a tax free ISA wrapper at a higher rate (or longer term invest in a stocks and shares ISA) or overpay into your pension. And it's also more diversified than investing all your funds in one asset (your house).

Overpaying your mortgage early does come with a psychological benefit, which shouldn't be underestimated, but if you're not bothered about that then from a financial perspective go for the ISA.

Pretty much the worst financial decision people routinely make is leverage heavily to buy a house they can barely afford that becomes a mill round your neck.

[Bairnardo]

41 minutes ago, Hedgecutter said:

As in, why pay April 2037's £330 mortgage bill now when you can pay it in 2037 for what might be the price of a Freddo?  

ETA: then again, if that's the case, one might then regret having invested £50k long term when all it might do is buy you a box of Freddos.  Basically, would inflation not affect the savings and mortgage payments equally, ie. just cancel out?

I'm going to act a bit thick too... I assume the logic here is pump that money into a higher interest ISA but keep it aside so that you have the same capacity to reduce/clear the mortgage should the need arise? I'm asking because in my current situation im getting a mortgage now but I do  have some savings which I had planned to throw at it to reduce the balance over the 2 year deal. That money is tied up in shares though that usually have a dividend yield of about 5%. Obviously its subject to price fluctuations too though.

[Hedgecutter]

19 minutes ago, Bairnardo said:

I'm going to act a bit thick too... I assume the logic here is pump that money into a higher interest ISA but keep it aside so that you have the same capacity to reduce/clear the mortgage should the need arise? I'm asking because in my current situation im getting a mortgage now but I do  have some savings which I had planned to throw at it to reduce the balance over the 2 year deal. That money is tied up in shares though that usually have a dividend yield of about 5%. Obviously its subject to price fluctuations too though.

Correct.

Personally, I've got almost all of an overpayment allowance left for 23/24 and a bit of cash sitting in a fixed cash ISA.  Starting to get a pressing issue now as the cut-off date for charge-free overpayments approaches.

[Soapy FFC]

1 hour ago, Hedgecutter said:

As in, why pay April 2037's £330 mortgage bill now when you can pay it in 2037 for what might be the price of a Freddo?  

ETA: then again, if that's the case, one might then regret having invested £50k long term when all it might do is buy you a box of Freddos.  Basically, would inflation not affect the savings and mortgage payments equally, ie. just cancel out any inflation issue?

My comment about inflation maybe just confused things, but I was thinking that in 15-20 years time the monthly repayments, and any outstanding mortgage would probably seem peanuts compared to now.

My personal experience with something similar to the mortgage question was when I bought my first car years ago. I bought it on finance and put all my savings into the deposit so I could reduce the monthly payments. I was able to afford higher payments and after a few months I realised that I would have been better to keep my savings and pay the higher monthly amount for the car, as I now had no savings to fall back on.

My other thought is that you would have to be very, very disciplined to pay off the mortgage now and then save the equivalent of the mortgage payments every month. Paying a mortgage every month is something you are forced to do and therefore will do. Saving money every month is something that is optional, and past experience is that what you plan to save every month may not actually match up with what you do save. Things will always come up that might make decide to skip saving, and before you know it your monthly expenditure has expanded to consume the extra money you had and planned to save every month.

Personally I would favour keeping the savings, paying the monthly mortgage but with a view of paying it off early in 10-15 years time, when the savings will be well in excess of the outstanding mortgage.

 

[RH33]

Depends, if you plan on being in a care home in your dottage then that's the house sold to pay for care unless you offload it in time to benefactor

[TxRover]

Lots of good takes/advice here. The most often overlooked issue on savings or investment versus payoff is taxes and uncertainty. Your dedicated leaders are unreliable in maintaining rules and laws over time, and a policy/law change in the future could easily invalidate your plans. I’m a huge fan of a good rainy day fund, but fixed rate mortgages that have to be refinanced on a every 2-5 year basis are alien to me, so I can’t judge your question by the standards over here. With an unstable future outlook on the mortgage rate you are/will be paying, I’d say prepayment is a much more interesting option.

[Hedgecutter]

3 hours ago, TxRover said:

but fixed rate mortgages that have to be refinanced on a every 2-5 year basis are alien to me

Interesting. I wonder if this is why Dave Ramsay & chums are such staunch advocators of paying off the mortgage early, because of a different system.

[Molotov]

@Hedgecutter

I personally prefer the approach of saving the spare cash in an ISA as long as interest rates stay higher or same as your mortgage.

Some lenders allow you to overpay and provide the option to withdraw the overpayments if you need those for an emergency. 

When interest rates were extremely low we overpaid into our pensions as our mortgage rate was 0.19% above BOE base rate. Once the rates climbed we paid our mortgage off completely. 

Having the money in an account that you stay in control of allows you some flexibility in event of an unexpected event. 

An alternative approach is to overpay some extra into your mortgage and stash the rest in an isa or a pension.

This site might help with some calculations:

https://www.thecalculatorsite.com

[TxRover]

2 hours ago, Hedgecutter said:

Interesting. I wonder if this is why Dave Ramsay & chums are such staunch advocators of paying off the mortgage early, because of a different system.

Most of the time the mortgage interest rate is higher than what you can get in a safe investment, so you’re playing yourself. There’s also the tax on interest income outside a retirement account, and trying to explain that to people gets them slack jawed, so they come up with quick and easy rules of thumb.

For mortgages here in the U.S. it’s most commonly a 30 or 15 year fixed rate, with some adjustable rate ones too. The adjustable ones have caps on yearly and lifetime (of the loan) increases, and are generally fixed for 2-5 years before varying.